USDIndex: Lower Line of Bullish Channel Lost After Index Failed To Break Above Upper Resistance Line Tuesday
The daily candle chart below shows the medium term price history for the USDIndex - which is a contract for difference (CFD) that aims to track the underlying US Dollar index (DXY). Today the index last traded near 96.79 around time of publication as the US holiday trading schedule affected market trading hours (with an early close for USDIndex).
Earlier this week in Ideas You Can Trade - the USDIndex was just under the upper line of the bullish channel (upper green line on chart below) and a breakout or reversal was expected from that line. The trend on Tuesday was becoming bullish again - but the upper line of the channel was mentioned as an area where resistance could exist - and indeed proved as a barrier which caused the reversal over the last three days.
Today's drop pushed the index even to lose support on the lower line of the channel -thus signaling an even more bearish move. This drop also coincided with some worse-than expected US economic data, and is setting the prospects for the USDIndex to test lower before attempting another push higher -in the days ahead.
Lastly, the area near today's low coincides with a parallel line (white line on chart below) just under the lower support line of the channel -and could act to help regain the channel. If this line is lost however in the next trading session - a bearish continuation should follow.
Below are examples of how to trade a bullish continuation or a bearish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 97.95 with a Limit to take profit @ 98.80 and a stop-loss @ 97.25 Risk/Reward Summary: Limit risk = 85 points profit / (-70) Stop-loss risk = Gain to Loss Ratio = 1.21
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 96.33 with a Limit to take profit @ 95.32 and a stop-loss @ 97.33 Risk/Reward Summary: Limit risk = 101 points profit /(-100) Stop-loss risk = Gain to Loss Ratio = 1.01
Medium Term Daily Candle Chart: